Where it went wrong for Dick Costolo at Twitter

Twitter investors wasted no time in showing their support for Dick Costolo's decision to stand down as chief executive of Twitter, sending the social media giant's shares up around 6%, but what had the man once called one of Silicon Valley's most impressive CEOs done to turn off Wall Street?

Investors biggest gripe with Twitter appears to be its slowing user growth.

Two years ago Twitter's month user base grew by more than 30%, this year its expected to hit just 14.1%, according to eMarketer estimates reported by the BBC.

And over the last year, Twitter’s growth has been far outpaced by smaller sites like Pinterest and Tumblr – leading some to believe that if it doesn’t get its act together, it may yet be overtaken by its fast-growing competitors.

Its user base doesn't compare well with the industry's major player either. Facebook has 1.4 billion monthly active users versus its 302 million. Instagram, with 300 million, is snapping at its heels.

Investors also want those to users to be engaged and there it again lags behind Mark Zuckerberg's social network.

Over half of all internet users are signed up to Twitter – though less than half that amount are active users. In contrast, over 80% of internet users are signed up to Facebook and about half of these are engaged.

Richard Windsor, a technology analyst at Edison Investment Research, said the biggest problem for Twitter is that it only serves a limited function for internet users.

Edison research suggests that users can spend just 9% of their time with Twitter because Twitter has no service for many of the other activities that users carry out on their smartphones.

“For Twitter, the monetisation opportunity is fundamentally limited unless it can spread its wings wider and encourage users to spend more time in its services,” Windsor said.

That's something Costolo himself might have agreed with. In his last quarterly earnings call, Dick Costolo said Twitter’s objective is to “build new applications and services in order to increase Twitter's utility around the world”.

Twitter missed revenue expectations in the first three months of 2015, causing its share price to tumble as much as 26% – partly due to its results being leaked earlier than expected.